Tuesday, May 10, 2011

Herman Cain: the Man With the (5 Point) Plan

Cain would create jobs with low-tax planning

As the former CEO of Godfather's Pizza, few are pegging Herman Cain as a blue-chip contenter for President based on his past experience.

Based on his ideas? That might be a different story altogether.

Recently, Cain revealed s five-point plan to create more jobs in the United States. At the heart of the plan is a low-tax, small-state approach to economics.

As President, Cain would attempt to do the following: First, he would slash the US corporate tax rate by 29%, from the current rate of 35% to 25% (still nine points higher than the Canadian corporate inciome tax rate). Secondly, he would reduce the US capital gains tax rate to zero. He would also (thirdly) reduce the tax on the repatration of profits earned in foreign countries (something really not currently done at all) to zero.

Fourth, he would eliminate the 6.2% payroll tax for a period of one year. Fifth, he would attempt to render these tax rates permanent -- or at least indefinite.

Cain's goal is very simple: get US-based corporations investing their profits in the United States again. He would implement specific low-tax policy points in order to use a low-tax fiscal regime as a fiscal multiplier,

In order to accomplish all of this while keeping the US within its budget, he would target exogenous government spending (the spending not incurred through the operation of basic government), then reduce the level of autonomous spending by eliminating superfluous government departments.

Cato Institute Economist Daniel Mitchell has greeted Cain's proposals quite enthusiastically.

"The US has one of the highest corporate tax rates in the world, which is a very self-destructive policy in a globally competitive environment," Mitchell declared. "I think it should be lowered to 15 percent, but 25 percent is a good start."

But, according to Mitchell, the truly indispensible element of Cain's plan is the reduction in taxes on capital gains.

"The capital gains tax is a form of double taxation (businesses already get taxed on profits, so taxing the gains of investors would be doing it twice)," Mitchell explained. "Many of America’s trade partners have no capital gains tax, so it would be beneficial for the US to join them in that policy."

In fact, if Mitchell would counsel against any portion of Cain's plan, it's against the payroll tax holiday.

"Generally speaking, people only respond to permanent change in incentives," Mitchell explained. "If you permanently eliminate taxes on workers, you’ll increase their incentive to work and be more productive. A 1-year holiday doesn’t help that much, but it certainly doesn’t hurt, either."

Then again, the payroll tax holiday is the element that best applies to small business. There's no real reason why major corporations should reap all the benefits of Cain's plan. Small businesses create jobs and add economic value too.

Herman Cain's proposal likely won't go over well with the Krugman crowd, or with any of the other Keynsean disciples out there. But they've already had their chance, and they've already failed.

It's time for US economic policy to be led by someone with a real vision. Herman Cain may have just that vision.

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